Chen-Young hits back

I WRITE regarding the article on Financial Sector Adjustment Company (FINSAC) by your financial columnist, Wilberne Persuad, on February 12, 2010.

It is a cardinal rule that a columnist should disclose any conflict of interest when writing about a subject in which there has been personal involvement. Mr Persuad breaches this standard by not disclosing in the article that he was a former director of FINSAC in the 1990's. Not having disclosed his FINSAC involvement in the financial crisis of the 1990s, he has compromised the views that he has expressed.

As to specific matters, Mr Persuad writes about National Commercial Bank (NCB), Eagle Commercial Bank (ECB) and Century National Bank (CNB) and makes two major errors. One is deliberately misleading and the other is his analytically wrong treatment of the notion of "too big to fail" to explain why NCB was saved.

Misleading explanation

First, he lumps ECB with NCB and CNB as though they were all insolvent. This is misleading as ECB was a profitable and viable commercial bank as stated by Dr Davies in his testimony before the FINSAC commission of enquiry into the collapse of financial institutions in Jamaica in the 1990s. The ECB was one of the financially strong commercial banks in the 1990s, unlike National Commercial Bank and some of the other banks

Second, he supports the explanation given by Dr Davies that NCB was saved because it was "too big to fail" by alluding to what happened in the United States with regard to American International Group (AIG) (by implication). This is a distorted comparison since the arguments used to support AIG were based on the potential threat to the worldwide financial system from financial institutions that had purchased junk securities issued by AIG, plus the insurance that it issued to cover financial and other risks. No such situation existed in Jamaica.

No logical basis for sale

He wrote that "because the International Monetary Fund (IMF) indicated that the Government of Jamaica was about to sell NCB by a certain date, all parties were immediately privy to the urgency, hence the fire sale-like conditions. Leverage was lost". Other than the standard consultative agreement with the IMF, Jamaica had no obligation to heed to any advice from the IMF. It is astounding for this former director of FINSAC to admit that there was a fire sale of NCB and that FINSAC had lost leverage in negotiating the sale. There was no logical basis why this should have been so.